Managerial finance principles and practices

Managerial Finance

The Pros and Cons of Outsourcing

As with any business or finance decision, there are both pros and cons when it comes to outsourcing. Naturally, the biggest benefit that comes with this choice is the cost (Pagach, 2004). Most companies that outsource do so because they want to save money and they know that paying workers in another country much less than they would have to pay workers in America can let them do that quite effectively (Clark, 2004). They can then either pass that savings on to their customers or they can simply have more money for corporate salaries, company expansion, and other opportunities (Clark, 2004). There are, however, cons to the idea of outsourcing, and the largest one of these is that a lot of American workers lose their jobs when companies outsource. This drives up the unemployment rate in the U.S. And it also harms the economy (Pagach, 2004). The company might be saving money by outsourcing but it will lose money in the long run if too many other companies follow suit because Americans will lose their jobs and they will not be able to buy the products that the company has to offer.

One company that is well-established and that could consider outsourcing is Home-Style Cookies. It is a New York company that employs less than 200 people, and most of them are blue-collar workers. There are thirty people who do nothing but package cookies, and the company is generally fairly efficient. However, if the company were to send its cookie-making work overseas it could probably make the cookies and have them shipped back for less money than it is costing them to make the cookies locally, especially since many of their suppliers are already located far from their plant, driving up the cost of doing business. However, the company would hurt the community it is currently in by doing this because it would mean the loss of jobs and also the anger at those lost jobs, so the people in that area might not buy the company's cookies anymore. This would ultimately damage both profits and image.